Swimming With a Shark: A Roadmap for Success

Recently one of my friends reached out because he is thinking about joining an established IR in a busy outpatient practice. My friend is a great IR and like many of us early in our career, has been practicing in a hospital-based practice with a private radiology group dealing with all the typical baggage I’ve discussed elsewhere on this blog. He has earned the trust and respect of many in his medical community. He is very well compensated and has a pathway for sizable financial upside should he remain in his current position. Despite all the positives of his situation he is not personally satisfied with his professional trajectory and has reached the point where enough is enough. It’s time to transition from a part-time interventionalist into a career as an image-guided surgeon. The OBL space can help facilitate this transition since the minimally invasive nature of our specialty allows us to practice at the highest level safely in the outpatient setting.

Does he do this on his own or does he join an existing office-based practice? There are clearly pros and cons to each approach. The pros of doing it on his own include the ability to have 100% equity in his own practice and the potential for greater financial upside. He would have full control of his domain and decide who he wants to work with and how he wants to run his business. In many ways, the ability to do something on your own sounds amazing. For some of us, this may be the best approach.

Before opening your own practice one must do their due diligence and clearly understand the negative aspects. First, there is a huge financial barrier that must be overcome to open your own practice. While every market is different, I would say one needs at least $300,000 in working capital to get underway. It’s a tough number to swing for many of us early in our careers as it presents significant portfolio concentration risk. Second, in many markets one must have hospital privileges or a transfer agreement to even open a center. Please see my post on pseudo-exclusive contracts for more details. Third, you need to be confident and efficient with both your technical and clinical abilities. It takes time to establish expertise. Furthermore, peripheral vascular disease which is the greatest unmet opportunity in most markets, is not a disease state many young interventional radiologists get meaningful exposure to in most training programs. Having on-site mentorship can be very beneficial in expediting your timeframe to developing expertise. Fourth, getting on insurance panels and developing the physical infrastructure for your practice can be a very time-consuming process. Insurance alone can take 6 months or more for some commercial payers. Most successful OBL owners plan their practices years before opening. Finally, by opening your own center you are embarking on a path where you have the potential to be a slave to your own success. Being a solo practitioner can be lonely and can have some significant negative lifestyle implications, even in the outpatient center. There is something to be said for collaborating with another physician you can trust and grow a bond with over time. It certainly makes work more enjoyable and adds meaning to our lives.

My friend has a difficult decision to make and these decisions are very personal. But let’s say he decides to join an established physician in an office interventional suite. How does one go about structuring a contract? Many young fish have tried swimming with sharks and many have not succeeded. In fact, I have gone swimming with a shark, though in new unchartered territories in the form of a new build center.  

Why do partnerships break down? Everything ultimately comes down to relationships and understanding the value proposition of working with someone. The point of a partnership is to create a sum greater than the individual parts. This can be very difficult to conceptualize, but we want 1 plus 1 to equal 3, not 2. Every partner must be not only financially, but in many ways spiritually invested in the success of the enterprise to make it the best it can be. Understanding not only our own personalities, but our potential partners’ personalities and tendencies is very important to having a healthy and long-lasting relationship. Kind of sounds like a marriage, right? Well, it basically is. Successful relationships do not happen overnight. They are cultivated with time.  

What makes a junior IR joining a senior IR a rather tricky situation comes down to how each party views the value the other party brings to the table. For the junior, you have the ability to work with a proven entity who can help you build your practice, mentor you and foster your growth. For the senior, you have an energetic younger physician who can help add new services, increase overall revenue and give you a mechanism to exit your successful practice.

Now let’s get down to the real sticky part of all this which is the financial component. In order to come up with a compensation plan each party needs to understand where the other is coming from and what their needs are. Most OBL sharks do not want a younger physician to come in and take care of existing patients. Some may in order to establish some time freedom for themselves, but doing so does not increase the overall revenue of the practice. Time freedom is great and is what every entrepreneur strives for, but the true OBL shark wants a junior partner to come in and prove their worth such that the overall revenue of the business increases. The OBL shark is somebody with the Founder Mentality. Understand this mindset before you jump in the ocean with this creature. It’s a mindset that is not necessarily compatible with the diagnostic radiology world where “partnerships” are formed after a vesting period in which the existing partners find the new hire a “good enough person.” Rarely is this new hire actually increasing the overall practice revenue. They are simply producing widgets in the form of wRVUs of an existing stream of imaging studies through the group’s contracts with hospital systems and outpatient imaging centers. Many diagnostic radiology groups nowadays actually lack tangible assets, which further raises questions about the value of “partnership” which frankly sound more like Ponzi schemes than actual partnerships.

Practically speaking, partnerships in the OBL world fail for one of two reasons generally:

1. Junior partner not pulling their weight

2. Senior partner not seeing the value in the junior partner.

Junior Partner Not Pulling Their Weight

Many OBL pioneers, not only in interventional radiology but also in vascular surgery and interventional cardiology, have had junior partners, but very few, if any, have retained those partners. When you ask these talented OBL owners and physicians why, the common refrain is the partner “was not a good fit.” Dig a little deeper and you’ll quickly learn that these OBL owners felt their junior partner was “not pulling their weight.” What does this mean exactly?

These OBL sharks feel like junior partners are coming in, oftentimes asking for salary support, and are not working hard enough to generate their own referrals. The OBL shark feels strongly that a junior partner coming in to treat patients from existing referral sources does not add any value but simply redistributes professional services fees from the owner to the new partner. Of course, what’s not being mentioned by the shark is the simple fact that he or she is clearly profiting off of the work the junior is doing as it is highly unlikely that professional services will account for more than 30% of collections for a given CPT code in a busy vascular or embolization practice. In many ways, a junior partner coming in to “just do cases” provides the OBL shark with time freedom. But what many junior partners fail to realize is that most OBL sharks actually don’t care about time freedom. These are Gorillas. They exist in this world to crush. To convince a gorilla to share some bananas with another gorilla, or a monkey for that matter, is a losing proposition.

I think too many young IRs coming up fail as junior partners in the OBL setting because they lack the Founder Mentality. They have trained under the diagnostic radiology ecosystem where they are conditioned to think that their pure skills and ability should guarantee a generous six figure salary with a partnership track.  In fact, I would say the mere proposition of salary support for a junior IR within a physician owned and operated OBL results in some sense of animosity on the part of the senior IR owner. He or she never had salary support when they built their practice from the ground-up. To think that they are going to pay you money to build your end of the practice runs counter to their ethos.

The junior partner must be motivated to build their own clinical presence in the existing OBL practice. Building a practice is a painful process. The opportunity costs are significant. It does not happen overnight. I don’t think enough trainees or young IRs realize this. Too many out there are looking for the “easy-out.” I have these conversations with young IRs and trainees weekly.

The financial dynamics between the senior and junior OBL partners likely has resulted in some younger IRs going back to traditional employment in hospital-based radiology groups or employment in corporate owned OBLs where there is guaranteed work with set salaries. The owners of these facilities tend to be non-physicians with a business background who find tremendous value in our ability to produce widgets in the form of atherectomies, embolization or dialysis access cases.  What these facilities however tend to lack is strong physician leaders with majority ownership stake who are fundamentally motivated to pass the ownership baton on to the future generation. 

Senior Partner Not Seeing the Value of the Junior Partner

Let’s say a true junior gorilla joins an established senior gorilla. We’re talking about a total rock-star of a gorilla. One who has the Founder Mentality. An independent minded physician who has the skills and mental fortitude to adapt and build a following. Let’s say he or she “proves their worth” to the senior gorilla. Shouldn’t the two be able to exist harmoniously in a mutual partnership?

Well one would think so, but what has happened is the handful or so of gorillas out there have left their original senior partners to create their own practices. If you talk to these individuals the common theme tends to be that they did not feel valued by their senior partner. I think it’s one thing to be a good teammate, but oftentimes “not being valued “simply refers to financial matters.

The whole notion of “not being valued,” comes down to simple math. First and foremost, the OBL space is financially attractive because it provides a path for physician ownership of a medical facility. Compensation is no longer limited to professional fees. Payment for services in the office setting is a global payment. The more efficient one can run their business, the more profit will be left over. A busy vascular or embolization practice can generate multiple seven figures of revenue annually, perhaps even into eight figure territory if one is particularly successful. A successful OBL owner and operator performing high dollar cases will be able to generate a seven-figure take home pay, even with recent reimbursement cuts. Much of their take home will be derived from profits as opposed to professional fees. In fact, much like the corporate OBL owner, the physician OBL owner will naturally want to keep professional services, which are simply a cost to the organization, as low as possible in order to increase the practice profit. If you are a junior partner who makes a living being paid per case performed, there is a natural lack of financial alignment between your partner and you. I experienced this in my own life when I had a somewhat contentious time negotiating a professional services agreement with my former partner.

Let’s say you join a partner who does acknowledge the value you bring to the organization and you are offered an equity stake. One needs to understand the concept of EBITDA (Earnings before interest, taxes, depreciation and amortization). Consider a practice generating 6M in revenue. Let’s say you join and increase revenue to 8M after a couple years of hard work. You’ve effectively increased the fair-market valuation of the practice significantly rendering your future buy-in cost much greater than it was before you joined. The whole time, your partner was benefiting tremendously as you brought in new business to the practice.

Naturally, if you are capable of doing this on your own independent of a senior partner and you don’t have a reasonable means to buy-in as you become a victim of your own success, why wouldn’t you just go out and do it on your own?

Creating Meaningful Financial Partnerships Between Established and Junior Physicians

First thing is first, if you are looking for a stable job with a salary and some semblance of stability, stop reading and go do something else with your time. You likely have not created the financial leverage or even the mindset to even consider embarking upon this path. Creating a partnership with a senior IR in an independently owned and operated OBL is not for you. There are plenty of corporate structures which will gladly employ you.

If you are a gorilla with the Founder Mentality, I think you can exist in harmony with senior gorillas, but it requires concessions on both ends.

First, I think it is imperative that the junior partner spend some time proving their worth to the senior partner. I think it is fair for the senior to provide some level of basic financial support, but I’m of the personal opinion that providing a salary does nothing but create bad vibes. I’m viewing this through the lens of my own experience which included a paltry monthly stipend for the first three months of practice, 10% equity ownership with no benefits. After the first three months I was on a pure “eat what you kill” plan with profit distributions at the discretion of the senior owner. When we think of financial support, I think it was kind of ridiculous that I was paid less than our medical assistant during that time. The funny thing is in hindsight, I actually wish I wasn’t paid a stipend at all. Why? It turns out I was successful in bringing my own patients to the center and got to the point where I would have made more money eating what I killed from the jump instead of being on a 3-month period with training-wheels. It was easily a five-figure financial mistake on my end for not believing in my own worth. It would have likely eased some tension between two alpha personalities and perhaps helped forge a stronger partnership.

While the junior partner needs to realize that their ability to cross a CTO or catheterize a type I prostatic artery in a reasonable time does not constitute a reason for guaranteed payment in the creation of a new partnership, the senior partner needs to fairly pay their junior partner for professional services rendered. Too often, Stark and AKS are used as excuses for limiting professional payment. The truth of the matter is you can always find a lawyer to tell you what you want to hear. Limiting professional payment to a per RVU basis or a small percentage of collections makes practicing in the OBL really no different financially than practicing in the hospital. I think the astute junior IR can see right through this and if faced with this prospect in their local market will likely be better served working as a hospital-based independent contractor for a while as they build up their own skills, reputation and personal funds to embark on their own office-based practice down the road. In speaking with some senior OBL owners about fair payment for services rendered, I think paying a proportion of collections is a good start. For a higher end endovascular practice, case costs are around 15-20%, office overhead is 30%, that should leave at least 50% of collections available for professional payment. It is up to the owner to decide at what specific profit margin is it worth it to retain the services of a young physician who has the potential to take over the practice one day. As it is right now, most corporate owned OBLs will limit payment to 10% of collections which is frankly insulting, but makes total sense. The more layers that exist between the physician on the ground and the OBL owners, the lower this payment will be. Speaking with independent physician OBL owners and operators, professional payment at 30% of collections is a good target to shoot for.

Becoming a Shark

Most physicians are financially illiterate. And really, it’s sad when you think about it. We are some of the smartest people out there. Not only that, we are incredibly motivated and altruistic. Too often, that altruism is used to devalue us and allow for many non-physicians to profit from our moral obligation to patients. There are very few things in this world which get me as fired up as physicians being cogs-in-the-wheels of the gas-guzzling medical-industrial complex which of course seems to be run by mostly non-physicians.

What they don’t tell you in medical school and residency is when you sign up to be a doctor, you are basically embarking on a high-end trade where you perpetually exchange your time for money. They also do not arm you with the important financial knowledge necessary to create real wealth so you can say no to situations which are not favorable to you. Medicine is becoming increasingly corporatized. Our incomes continue to decrease with respect to inflation and we are rapidly being devalued or frankly eliminated as we are reduced to mere “providers.” And the one site of service which is actually a financial boon to both patients and physicians is being gutted by people who don’t have your skills or knowledge.  In the OBL world, I find it very frustrating that a young IR is more likely to “negotiate” professional payment with a former nurse, physical therapist, chiropractor, diagnostic radiologist, cardiothoracic surgeon or some slick sounding used car salesman type with an MBA but no prior direct healthcare experience than they are an actual interventional radiologist with your unique skillset. Not only that, but these same folks will gladly talk down to you, perhaps calling you “greedy,” “inexperienced” or just “green,” when you raise any concern or question with respect to the value they actually add. It’s even more frustrating when your own fellow colleagues, some of whom are brilliant, participate in the antics by selling your future out to the highest-corporate bidder and encourage the vocal young IR to “leave the financial issues to the C-suite.”

If you’re like me, and I suspect many of you are, you want to take control back. In order to do so you must become a shark.

Part of being a shark is having a keen understanding how to create value and how to extract value. In the OBL world, just as it is in any business venture, equity is everything. Salaries are truly what they pay you to kill your dreams. The sooner you come to terms with this reality, the better off you will be with respect to regaining control over your domain.

Any young IR aspiring to be a practice owner needs to have a pathway for meaningful equity and any senior practice owner needs to realize that the baton needs to be handed off in order to ensure that practices remain physician owned and operated. This isn’t some novel concept created by some genius blogger writing away as he flies to his locums assignment. There are many examples of junior physicians taking over practices as a senior physician retires. In the world of dentistry, this is actually a pretty common thing. There are many lessons we can learn from other fields which can apply to the endovascular world. In many ways, I feel this is a moral obligation in order to ensure that we hold on to whatever autonomy we have as physicians.

Part of becoming a shark also means believing that you will always find a meal to eat. If you don’t like what you’re looking at, swim away and do not look back. It is a principle that I have personally embraced which has been life changing for the better. Getting to this point has involved doubling down on my personal beliefs, being very vocal about how I truly feel, and creating the financial leverage in my life to stop letting those who do not share my own values take me for a ride (most certainly a post for another day). While we want to be friendly and fair to cultivate meaningful relationships, we also need to remain firm. If being firm means cracking an egg every now and then, crack some damn eggs and don’t let anyone make you feel bad if you’re trying to cook an omelet. If every young physician did the same thing, our healthcare system would change for the better.

A Financial Proposal for Passing the Baton

So back to my talented friend who is thinking of joining an established IR in an OBL. Here is what I would propose for his future partnership:

1. No salary

2. Payment based on production

3. No restrictive covenant

4. 2-year provisional period followed by an Equity Option

5. Ramp-Up period for 100% equity ownership as senior partner phases out

I’d encourage my friend to prove himself to this OBL Shark. Get in the market, establish oneself and build. Generate cases organically through hard and honest work. Leverage initial outcomes to continue practice-building.

At the two-year mark, the shark should decide if it is worth it to bring on the younger IR as a partner. Ideally a pre-defined financial benchmark should be used as an objective metric to decide if the junior has “passed the test.” The proposed equity buy-in should be at a sizable proportion to make it worthwhile for the junior. The option to buy into an office interventional suite at 10-20% equity after working two years to raise the practice valuation is not very enticing, however this tends to be the norm. What should be happening is the junior IR, after proving their worth, should be able to exercise an option to buy into the practice at the valuation prior to joining. Ideally this should be at an equity proportion greater than 20%.

There should then be a plan to have the junior partner continue to buy into the practice, ideally through sweat equity over a pre-defined time frame as the senior partner phases out. The practice valuation should be at a multiple that is meaningful for the senior partner, but not one which would make passing the baton unrealistic. You can read more about my opinion of private equity here.  

What if it doesn’t work out? Well, the junior who has brought in their own cases should have the ability to leave and create their own office should they choose to. There is this thinking among some senior practice leaders that the existence of a junior partner in a given market is entirely dependent on their reputation and connections. While this may be partially true, I don’t think it’s fair to the junior partner and sets forth an unhealthy basis for their relationship. Just as the junior partner has no financial guarantees, the senior partner needs to understand that the junior partner is bringing in patients which are new to the practice and they are playing an essential role in allowing there to be a transition plan as one approaches the tail end of their career. This should be a win-win situation for all parties.

Pitfalls

1. Ego

As physicians, we sadly find ourselves more likely wanting to destroy each other than help one another. We need to let go of our egos and collectively adopt an abundance mindset. Admittedly, this can be hard to do if the person you’re working with has a mindset or maturity level that is less than ideal. Prior to joining anyone on some partnership track, every junior IR needs to do their due diligence on their future partner. Listen carefully to what others have to say. Very few will give it to you straight. Coded language is the norm. People don’t like to “talk shit.” While that is superficially admirable it is also equally unhelpful. Understand the financial incentives of anyone you speak with.  Always trust your gut. Get a second opinion.  If something doesn’t smell right, run.

2. Fear

Many of you embarking on this path may find yourself in a position totally foreign to you and those in your life who love you. The prospect of having no salary when you could be making guaranteed money for a radiology group or corporate office-based entity is a hard pill to swallow.

The solution? Just get over it. Anyone who ever created anything great in this world never had a guarantee. You are here to accomplish something truly extraordinary. The only thing you need to be successful is the space between your own two ears. You’ve been using it for many years to get to this point. Just put in the work and make it happen. If you fail, you will learn something about yourself which will make subsequent endeavors more likely to succeed. During the process, I bet you doors will open up which you likely weren’t expecting to.

Final Words

I’ve had two really bad professional experiences the last few years which actually had nothing to do with medicine but everything to do with relationships and finances. Both of these experiences got me so fired up that it has become my personal mission to make sure no young IR experiences the hell I’ve been through. My goal is to educate, but I need every reader to understand that I am not a financial, legal or tax professional. I likely offer more value than many professionals out there, but please do not make life altering decisions based on what I write. I am more than happy to listen, advise and connect you with professionals I trust.

Some of you will disagree with what I have laid out. That’s great if you do. I’d love for you to comment below so we can have a meaningful dialogue.

More content coming your way soon. As always, drop me an email at linemonkeymd@gmail.com with any questions/concerns or ideas for content you’d like to see on the blog.